Active Stocks – Definition

Cite this article as:"Active Stocks – Definition," in The Business Professor, updated September 20, 2019, last accessed June 3, 2020, https://thebusinessprofessor.com/lesson/active-stocks-definition/.

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Active Stocks Definition

Active stocks refer to stocks which are heavily-traded on an exchange. They are actively purchased and sold, and frequently have outstanding shares in large numbers. Because active stocks are heavily-traded, they often have bid-ask spreads that are low because of their increased liquidity.

A Little More on What are Active Stocks

Active stocks are securities that are heavily-traded on an exchange, and often have outstanding shares in large numbers. Because active stocks are heavily-traded and are always available in huge volumes, they often have bid-ask spreads that are low because of their increased liquidity. Active stocks are likely to trade in huge volume daily, irrespective of whether the stock’s price is fluctuating.

The stocks that comprise indices like the S&P 500, for example, are usually active stocks. Companies like Microsoft, Apple, Amazon, General Electric, Ford, AT&T, Walmart, and Target tend to see high trade volume each day.

There is no exact volume benchmark to determine an active stock’s definition. Some analysts define active stocks as trading at one or two million shares each day. Typically, more than 250 stocks in the United States trade more than five million shares daily.

While active stocks are indicated by high volume, this can apply to sizable price movement at times, and most outlets would distinctly differentiate a volume-based active stock from a price-based active stock.

Daily, traders and exchanges list active stocks with both volume and day’s loss or gain. Stocks might be actively traded solely because they have a huge number of outstanding shares, or because of a special event like a tender offer being available for the company or because of unexpected news.

Most Active Stocks

Exchanges like NASDAQ and NYSE provide daily listings of the Most Active Stocks, usually limited to Te top ten or twenty stocks with the highest trade volume on any particular day. Most Active Stock listings are often similar daily, with the inclusion of stocks featured in major indices like the S&P 500. From day to day, the list changes due to market forces, and is not limited to stocks. Currency, bonds, futures, and ETF often appear on Most Active lists.

Most Active lists refer to attractive tools for all types of traders, and day traders often watch Most Active lists for stocks with major price fluctuations and high volume.

Reference for “Active stocks”

https://www.investopedia.com › Insights › Markets & Economy

https://www.nasdaq.com/markets/most-active.aspx

https://www.investing.com/equities/most-active-stocks

https://www.tradingview.com › Markets › US Stock Market › Market Movers

https://www.barchart.com/options/most-active/stocks

Academic research on “Active stocks”

Momentum risk: An approach following the correlations between active stocks, Pinheiro, D. B. (2015). Momentum risk: An approach following the correlations between active stocks (Doctoral dissertation).

Liquidity, information, and infrequently traded stocks, Easley, D., Kiefer, N. M., O’hara, M., & Paperman, J. B. (1996). Liquidity, information, and infrequently traded stocks. The Journal of Finance, 51(4), 1405-1436. This article investigates whether differences in information‐based trading can explain observed differences in spreads for active and infrequently traded stocks. Using a new empirical technique, we estimate the risk of information‐based trading for a sample of New York Stock Exchange (NYSE) listed stocks. We use the information in trade data to determine how frequently new information occurs, the composition of trading when it does, and the depth of the market for different volume‐decile stocks. Our most important empirical result is that the probability of information‐based trading is lower for high volume stocks. Using regressions, we provide evidence of the economic importance of information‐based trading on spreads.

Price volatility of Indonesian stocks, Chang, R. P., Rhee, S. G., & Soedigno, S. (1995). Price volatility of Indonesian stocks. Pacific-Basin Finance Journal, 3(2-3), 337-355. The first-order serial dependence between overnight returns and following daytime returns and between overnight returns and preceding daytime returns is evaluated to gain insight into the intraday volatility behavior of Indonesian stocks. The pattern of price reversals and price continuations observed for Indonesian stocks is different from the U.S. and Japanese markets, reflecting differences in market microstructure of the three markets. Price reversals are dominant over price continuations at the market open as well as market close for Indonesian stocks. These results are different from the U.S. experience since high-volume U.S. stocks tend to show price continuity at the market close, an attribute that is associated with the stabilization activities by market-makers. These results are also different from the Japanese experience which also shows strong price continuations at the market close.

Cross-listing and liquidity in emerging market stocks, Silva, A. C., & Chávez, G. A. (2008). Cross-listing and liquidity in emerging market stocks. Journal of Banking & Finance, 32(3), 420-433. In this study, we analyze liquidity costs for stocks and ADRs from the four main Latin American markets. The results indicate that international investors are exposed to different trading costs in Latin America, with market location and firm size as important determinants. In the local market, stocks that cross-list internationally do not always present a liquidity cost advantage relative to non-cross-listed stocks. When the ADR and the local stock markets are compared, large firms present lower trading costs in the home market. The opposite occurs for small firms.

An empirical analysis of NYSE specialist trading, Madhavan, A., & Sofianos, G. (1998). An empirical analysis of NYSE specialist trading. Journal of Financial Economics, 48(2), 189-210. This paper examines empirically the magnitude and determinants of dealer trading by NYSE market makers (specialists) across stocks and over time. Across stocks, specialist dealer trading varies widely and is inversely related to trading volume and proxies for off-exchange competition. Over time in an individual stock, specialists participate more actively as sellers (buyers) when holding long (short) inventory positions. This results suggest that dealers control their inventory positions by selectively timing the size and direction of their trades rather than by adjusting their quotes. Further, specialists participate more in smaller trades and when the bid–ask spread is wide.

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